In mid-July, First Marathon Securities, one of Canadas largest independent broker/dealers, was slapped with the heftiest fine ever imposed on a member firm by the Toronto Stock Exchange (TSE). The $4 million (Canadian) penalty, which includes personal fines and suspensions to several First Marathon senior executives, arises from trading activity in a small Calgary, Alberta, garbage bin supplier known as Cartaway Resources.
In 1995, First Marathon bought a controlling stake in Cartaway soon after the Vancouver and Alberta-listed firm repositioned itself--in true Canadian fashion--as a resource exploration company. After acquiring Cartaway for pennies a share, First Marathon brokers began to tout the firm as the discoverer of a potentially huge ore deposit along the Labrador Peninsula.
By mid-1996, they generated enough interest in the stock to push the price to more than 26 a share before collapsing confidence in the discovery sent the price plummeting back to earth.
Shortly thereafter regulators in several jurisdictions, including investigators from the British Columbia Securities Commission, accused the brokerage firm of violating the public interest with a scheme to promote Cartaway for personal gain.
First Marathon, which actively negotiated its settlement with the TSE, has been openly apologetic.
There was a problem, we have admitted it and it was a very unfortunate incident, says Michael Walsh, a First Marathon spokesperson.
For clearly violating exchange rules the firm was fined $4 million, which includes a personal fine to CEO Lawrence Bloomberg in the amount of $250,000.
Additionally, Stuart Henry, a vice president of compliance, was fined $485, 000, suspended from the firm for four months and permanently barred from duty as a compliance officer. Robert Disbrow, a vice chairman who has managed numerous First Marathon offices, was fined $110,000, suspended for three months and barred from ever working as a branch manager.
The fines, says a TSE spokesperson, were so stiff because the firm had been cited previously for questionable record-keeping and supervisory practices. Those practices remained unfixed throughout the entire Cartaway affair.
Even with the TSE settlement, First Marathons Cartaway-related troubles are far from over. Regulators in Alberta and British Columbia arent finished with their own investigations and they sound less willing than their Ontario counterparts to cut a deal.
Brokers touting securities they own wont be tolerated--that message must be driven home loud and clear, says Mike Bernard, a British Columbia Securities Commission spokesperson. We have no plans to settle this through negotiation.